Beyond tech giants: Three investment themes reshaping US markets

The dominance of technology stocks in recent years has been nothing short of remarkable. From the cloud migration to artificial intelligence (AI) revolution, a select group of US mega-cap stocks has captured investor imagination and capital allocation.

However, January 2025 delivered a stark reminder of the risks inherent in such concentrated positioning when DeepSeek, a Chinese AI company, triggered significant market volatility that sent the S&P 500 down 1.46 percent in a single session.

This event highlighted a critical market dynamic that has been building for months: the extraordinary concentration risk in US equity markets.

By December 31, 2024, the top five securities in the S&P 500 commanded nearly 29 percent of the index's total weight, while US equities comprised 67 percent of global equity markets—up from 62.57 percent in 2023. Such concentration levels are historically unprecedented and suggest that diversification has become not just prudent, but essential.

Valuation disparity creates opportunity

While technology stocks soared to new heights, other sectors saw a dramatically different trajectory. The performance disparity has been striking. Over the past two years, technology and communication stocks significantly outperformed the broader market, with a substantial portion of stocks in these sectors beating the S&P 500. In sharp contrast, only 5.1 percent of consumer staple stocks and 7.5 percent of healthcare stocks outperformed the benchmark.

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This divergence has created compelling valuation opportunities across multiple sectors. Healthcare equipment and supplies currently trade at the 13th percentile of their 10-year valuation range, while healthcare providers and services sit at an even more attractive 6th percentile. Consumer services and food, beverage, and tobacco sectors are trading at the 1st and 10th percentiles respectively—essentially basement-level valuations relative to historical norms.

The earnings growth projections for these undervalued sectors paint an intriguing picture. Consumer services companies are forecast to deliver 13.6 percent earnings growth in 2025, while the three healthcare industries mentioned above project growth rates between 8.1 percent and 9.7 percent. These growth rates, combined with depressed valuations, suggest significant potential for multiple expansion as market attention eventually rotates toward these overlooked opportunities.

Theme 1: The structural housing shortage

The US housing market represents one of the most compelling structural investment themes of our time. America faces an estimated shortage of 2-3 million homes, creating a supply-demand imbalance that has become both a social imperative and an investment opportunity. This shortage encompasses not just single-family homes but extends to multifamily apartments, senior residential accommodation, and workforce housing.

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Commercial real estate, which struggled in the post-pandemic environment, is showing early signs of valuation recovery. Industrial and power-related real estate, specialised workspaces, and net-lease investments are experiencing meaningful growth and are positioned to deliver strong performance over the next 10-15 years, according to JP Morgan.

Asset management projections

The real estate opportunity extends beyond traditional residential and commercial properties. The infrastructure demands of our increasingly digital economy are creating new categories of real estate investment, particularly in data centres and power-generation facilities.

Theme 2: The AI-driven infrastructure bottleneck

While investors have focused heavily on AI software companies, the physical infrastructure requirements of the AI revolution present equally compelling opportunities. Three catalysts are driving unprecedented demand for energy infrastructure: the reindustrialisation of US manufacturing, increased electrification in clean energy solutions, and the accelerating adoption of AI and digital infrastructure.

The numbers are staggering. As per JP Morgan Chase, US power demand is expected to increase by 5-7 times over the next 3-5 years. Data centre development is growing at approximately 25 percent annually in the US and 15-35 percent in other major markets, including Asia, Europe, and Latin America.

This creates structural opportunities in power generation and distribution, traditional and renewable energy, nuclear power, battery storage, data centres, cell towers, and fibre optics infrastructure.

The infrastructure bottleneck is becoming so severe that technological advancement is arguably being constrained by the lack of physical infrastructure to support it. Companies that can address this fundamental constraint are positioned to benefit from multi-year investment cycles.

Theme 3: International diversification and commodities

The concentration in US equities has created opportunities for international diversification that offer genuine portfolio benefits. Japanese equities have delivered impressive returns of 28.24 percent in 2023 and 19.22 percent in 2024, while the rolling three-year correlation between US and Japanese equities has been declining, according to CME Group data.

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The commodity markets saw a notable inflection in 2024, with both the S&P GSCI and Bloomberg Commodity (BCOM) index posting positive returns. The S&P GSCI delivered a 9.25 percent total return while the BCOM index achieved 5.38 percent. Goldman Sachs research forecasts total returns of 10 percent for BCOM index and 12 percent for the S&P GSCI in 2025, driven by geopolitical tensions, trade policy shifts, and inflationary pressures.

The adoption of commodity futures has grown significantly, with the CME Group's commodity complex seeing open interest grow from nearly $900 million to almost $6 billion on a notional basis as of January 31, 2025. This growth reflects increasing institutional recognition of commodities' role in portfolio diversification and inflation hedging.

The key to capitalising on these opportunities lies in thorough fundamental analysis to identify high-quality companies capable of generating returns above their cost of capital consistently. Companies that meet these criteria, particularly in sectors experiencing structural tailwinds like housing, infrastructure, and international markets, offer compelling risk-adjusted return profiles.

As markets shift from the concentrated leadership of recent years towards a more diversified growth environment, investors who position themselves across these emerging themes may find themselves well-positioned for the next phase of market evolution. The era of putting all investment eggs in the technology basket appears to be giving way to a more nuanced, diversified approach to capturing long-term growth.

The author is co-founder and CEO of Vested Finance

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.